Public Bill Committee

[Mr Graham Brady in the Chair]

Clause 1

Question proposed, That the clause stand part of the Bill.

Christopher Leslie: I welcome you to the Chair, Mr Brady, on a brisk and frosty morning, and that is just in the Committee room. We had a useful evidence session, which is an interesting innovation to the Committee stage that I have not previously been used to in years gone by. Clearly, having had the benefit of the wisdom of the witnesses, the detail of the clauses now makes much more sense.
Clauses 1 and 2 set out the principal changes to the rates of national insurance, and that will have a big impact on all our constituents, whether employees or employers. Clause 1 relates to the primary contributions to class 1 of national insurance, which largely affects employees. On Second Reading, the Opposition accepted the need for those changes. The previous Chancellor of the Exchequer, my right hon. Friend the Member for Edinburgh South West (Mr Darling), announced the measures and the current Government are introducing the legislation on them. It was my right hon. Friend’s choice to tailor the then Government’s approach to the deficit reduction not only to include gradual and temperate changes to public expenditure, rather than the harsh and speedy cuts to public services that the current Chancellor has chosen, but to reflect the need for the tax system to bear a measure of the strain as well, hence the changes that have come forward. I could not let the clause pass without acknowledging that we accept that that is necessary. Such a measure will never be welcomed with open arms by taxpayers up and down the country, but it is necessary given the wider fiscal and economic climate.
I was not a Member during the previous Parliament, so I was not able to question my right hon. Friend the Member for Edinburgh South West about the changes to national insurance that he was introducing. This is my only opportunity to ask those questions, given that the Minister is presenting the Bill. As I understand it, the national insurance fund represents all the revenues from the national insurance system, which was set up after the second world war as part of the Beveridge report, and it was designed to support the universal insurance system for the British people.

Stephen Williams: Will the hon. Gentleman give way?

Christopher Leslie: I was trying to describe the national insurance fund, but the historian on the Back Benches may know more about it.

Stephen Williams: May I correct the hon. Gentleman’s history? National insurance was set up in 1911 by my political hero Lloyd George.

Christopher Leslie: I am corrected on that fact. Perhaps a function of the national insurance fund changed after the second world war, but the hon. Gentleman makes an interesting point that echoes the issue that I was about to raise. As I understand it, the income from the national insurance fund comprises the contributions from employees, employers and the self-employed, plus interest on its own investments. Each year, those amounts are paid into those funds. As I understand it, there is currently a surplus on the fund—in other words, more money is being paid into the national insurance fund than is being paid out of it.
Will the Minister update the Committee on the current state of the national insurance fund? Over the years, various Government Actuary predictions have suggested that the fund is growing in surplus at an exponential rate, but I am not sure whether the recent credit crunch and recession changed that profile of expectations. Is the Minister able to set out how the fund stands? I think that is relevant, because my understanding is that the surplus on the fund is loaned to the Government—to the Debt Management Office, which includes the Commissioners for the Reduction of the National Debt—and interest on those invested moneys is paid back to the national insurance fund, which is quite a substantial amount of money in itself. The previous Administration had what was colloquially known as the golden rule; any borrowed moneys, including a surplus from the national insurance fund, were not to be used to finance current expenditure but were only to be used for investment, in particular capital investment such as infrastructure.
My second question to the Minister, if he can bear with me and give us a general update on the national insurance fund, is to ask him what the Government’s policy is on the use of the surplus. Given that much of the background to the debate on the changes to national insurance in clauses 1 and 2 has been a discussion about deficit reduction, it might be expected that it could count as part of current expenditure. As I understand it, however, the rules and conventions of the Treasury mean that that is not the case.
If we are embarking on legislation that changes national insurance rates and brings in revenue, yet there are constraints on how that revenue can be used, it is important that we know about them. If it is a continuation of the previous Administration’s policy that that money is for investment, so be it, and that is fine, but it slightly changes the prism through which we see many of the changes. I should be grateful if the Minister would set out the state of the fund and the position regarding the use of the surpluses.

David Gauke: It is a great pleasure to serve under your chairmanship, Mr Brady. On a point of consensus, I agree with the hon. Member for Nottingham East that it is a cold morning in here. To use his word, I hope that proceedings will be brisk, but time will tell.
Clause 1 amends sections 8(2) and 9(2) of the Social Security Contributions and Benefits Act 1992 and the Social Security Contributions and Benefits (Northern Ireland) Act 1992. The clause increases the main percentage rate of class 1 contributions paid by employees from 11% to 12% and increases the additional primary percentage rate of class 1 contributions paid by employees with earnings above the upper earnings limit, which is currently £844 a week, from 1% to 2%. It increases the class 1 secondary rate, which is the employer contribution, from 12.5% to 13.5%. Those increases run from 6 April 2011 and, as the hon. Gentleman pointed out, they were announced by the previous Government so I am not entirely surprised that he supports them. Indeed, as we learn more about the Opposition’s policy and their belief that in the balance between spending cuts and tax rises more should be raised from taxation than they had planned at the time of the most recent general election, one might even expect them to want to increase the rates further.

Kelvin Hopkins: If I may follow that point, some have suggested—indeed, I have suggested —that the upper earnings limit on national insurance contributions ought to be lifted on a standard percentage, or even a progressively increasing percentage, all the way up. Have the Government considered that possibility, and how much revenue it might raise?

David Gauke: That was the policy of the hon. Gentleman’s party in the 1992 general election, although it did not meet with notable success. We do not intend to go down that route, because of the potential disadvantages. As a whole, this Government believe that the previous Government got the balance wrong, in terms not only on the ratio of spending cuts to tax increases but on the increases in taxes on labour that that represents. Although it is not part of the Bill, we will raise the thresholds through a regulatory order. That will mean that much of the increase on labour will not occur, which is consistent with the 2010 Conservative manifesto pledge.
As I have said, this is not a particularly controversial element of the Bill, but I will try to answer the questions raised by the hon. Member for Nottingham East on the national insurance fund. He is right to say that there is a projected surplus for the national insurance fund, which is currently projected to be £50 billion for 2010-11. That surplus, however, will change as a result of policies announced in the emergency Budget, including the triple-lock pensions guarantee and the reduction in the secondary threshold. It is important that we do not make decisions on the national insurance fund by looking just at the balance as of today; it is important that we are prudent. Pensions will be paid from the fund, so we need to look at projections over the longer term.
The hon. Gentleman also asks whether we are using the national insurance fund surplus to fund other Government commitments and what our position is on that. The national insurance fund is run on a pay-as- you-go basis, with current income paying for current expenditure. Although national insurance contributions fund contributory benefits, they also come within the wider fiscal framework. It would be imprudent to use the surplus in one year to increase benefits without regard to the long term. Obviously, we cannot have benefits going up and down according to short-term conditions and how much money is coming into the national insurance fund. We have a surplus, but it is sensible to use that to reduce the deficit in the short term, which clearly is to the long-term benefit of the UK’s public finances.

Christopher Leslie: That is the crux of my inquiry. In general terms, people have used the shorthand that the surplus, national insurance changes and the derived income are used to reduce the deficit. My point was that if there are constraints on the use of the surplus, surely that does not offset the general current expenditure fund. Those moneys are specifically earmarked for capital investment. If the Minister is not able to walk us through the line-by-line detail of Government accounting practice, perhaps he could simply confirm that Government policy remains as it has always been, with the surplus being used solely for capital investment.

David Gauke: Nothing in what we are doing is a change to the usual practice on the national insurance fund, but for reasons that all Governments have recognised, the amount of money going out of the fund and the amount of money going into the fund do not match on a year-by-year basis. Having a surplus does not give us the opportunity to increase spending in a particular area, and I do not think that the hon. Gentleman is suggesting that it does. Without walking him through the details of Government accounting, there is no change to the approach that all Governments have followed—I suspect, since 1911, although I cannot entirely confirm that.

Christopher Leslie: I am grateful to the Minister for that explanation. It is important to have on record that the approach taken to the national insurance fund has not changed and that, essentially, the rules and the way in which the fund is accounted for remain as they did under the previous Administration. Many people are sceptical and think that national insurance is simply another form of income tax by a different name. It is, therefore, important to reiterate that there are certain constraints and rules related to the amounts of national insurance paid by employers and by employees.

Question put and agreed to.

Clause 1 accordingly ordered to stand part of the Bill.

Clause 2

Question proposed,That the clause stand part of the Bill.

Christopher Leslie: Clause 2 deals with class 4 changes to national insurance, which are largely on self-employed profits, and so on. I want to press the Minister on whether there is a shortfall between the rhetoric that his party—and indeed the Liberal Democrats—enunciated before the general election, and the reality of the changes that are now being made. Although the Bill simply talks about the rise in employer and class 4 national insurance contributions, the suite of policies that both parties in the coalition Government were pursuing implied that they would stop the rise for employers. The coalition agreement talked about
“our pledge to stop the rise in Employer National Insurance contributions from April 2011.”
That is not to lessen or alleviate that rise, but to stop it.
We are not simply looking back at what the parties in the Government said before the general election, when a lot of their campaigning against what they called “the jobs tax” and how it had to be reversed created an assumption among the general public that any proposed changes to employer national insurance contributions would be reversed and not enacted. That was, by and large, the expectation that came from the general election campaign. I concede that the small print of the Conservative manifesto noted that the 1% would be counteracted with a change in the thresholds, which, no doubt, the Minister will refer to. However, it was not necessarily highlighted that the threshold change would only counteract around two thirds of the amount involved. As I understand it, the yield from the changes to employer national insurance contributions is roughly £4.5 billion in 2011-12, yet the expenditure by increasing the threshold in 2011-12 comes to only £3.1 billion. That gives a £1.3 billion shortfall, which may be welcomed by many employers, but it may fall short of their expectations given what they heard during the general election campaign, and what they read subsequently in the coalition agreement.
Accuracy for the general public is exceptionally important, and there was an understanding that the policy would be reversed, rather than simply chipped away at. I wonder whether the Minister can explain how, in the coalition agreement, the words on page 25 came to describe it as a
“pledge to stop the rise in Employer National Insurance contributions”.
Perhaps he can also explain how that will be amended.
The Liberal Democrats themselves promised that they would reverse the change to employer national insurance contributions. I am not sure whether that was simply for employers; it may even have been for employees as well, but it was certainly in the Liberal Democrat manifesto. In recent days, we have become used to Liberal Democrats explaining that, “Well, what was in our manifesto doesn’t actually stand; it was superseded by the coalition agreement”—as though year zero suddenly came into being. [Interruption.] I will give way to the hon. Member for Bristol West if he would like to clarify that matter.
The British public particularly remember what the Liberal Democrats said before the general election, when they were skipping around the country trying to hoover up votes with any number of promises on a whole series of different fronts. The Conservatives had clearly learned lessons from previous electoral defeats and inserted a set of subsections and small print into their pledges all along, although the tabloid press did not necessarily pick up on them. On 30 March, TheSun reported:
“The Shadow Chancellor promised to cancel a 1p National Insurance rise for everyone apart from high earners.”
We know that since then the Conservatives have reneged on the change for employees, who simply had to accept it; but the employers now need to know what is going on. We had an exchange about this during the evidence session. The Minister set out the threshold indexations, which I think were published on 3 December. Clearly there is an indexation change for the thresholds, on top of which I understand that some time in the spring he intends to introduce the regulatory order, which will offset some of the employer change. I do not know whether he can tell us exactly when that will be.
I do not have my calculator with me in Committee, but can the Minister reiterate that the indexation changes are retail prices index indexations? I think that is what he indicated in the evidence session, but now that we have seen the figures could he confirm it? Can he also confirm, plainly and openly, that the threshold changes he intends to make do not stop the rise in the employer national insurance contribution? At the very least, employers up and down the country need to know that what they may have felt was a promise is now not being fulfilled.

David Gauke: Clause 2 amends section 15(3ZA) of the Social Security Contributions and Benefits Act 1992 and the Social Security Contributions and Benefits (Northern Ireland) Act 1992. The measure relates to the self-employed who will see a 1% increase from 6 April 2011, which was announced by the previous Government. Although not part of today’s Bill, the Government intend to reverse the impact of the previous Government’s tax on jobs by increasing the lower profits limits and the income tax personal allowance.
I give the hon. Member for Nottingham East credit for trying to make the most of what is a fairly weak case, which is in essence that here are a Government who are implementing a tax change in exactly the way that the larger party in the coalition Government said it would do in its manifesto. I note the point that setting these things out in a manifesto is seen as being the small print, but conventionally that is seen as something quite significant. To be fair, the electorate and, specifically, employers understood what we were doing. There was certainly no attempt on our part to conceal what we were doing.
Given the difficulties in the public finances, and given our desire to focus on protecting the lowest-paid and protecting lower paid jobs, which may be the most vulnerable in difficult economic conditions, we focused on raising thresholds and raising the personal allowance. It will mean that anyone earning £35,000 or less will not be affected by the national insurance contribution increases. It will mean that employers find that the damaging effects of the increase that was proposed are mitigated very substantially and, as I said, it is exactly consistent with what is in the Conservative party manifesto.

Christopher Leslie: But surely the Minister has to acknowledge that it is not exactly consistent with what is stated on page 25 of the coalition agreement, which mentions the
“pledge to stop the rise in Employer National Insurance contributions”.

David Gauke: We have looked at the best way to stop the damaging tax on jobs, and the most effective way of doing that is by raising the thresholds in exactly the way that we are proposing. In clause 2, we are increasing the lower profits limit and the income tax personal allowance, and in clause 1, we are increasing the national insurance threshold and, indeed, the income tax personal allowance. That stops the most damaging elements and it will reverse them. Given the difficulties we face with the public finances, and given the constraints that we have inherited, that is a wise use of limited resources.
In the end, what would have been damaging to jobs provoked hundreds of business leaders to write in support of our policy. Tony Blair wrote in his memoirs that when 35 leading chief executives said that they would support our policy, that was the moment when he thought that the new Labour Government were finished, particularly as there was no response from any business leaders in support of Labour’s tax plans.
The measure demonstrates our commitment, despite the ruinous state of the public finances that we inherited, to ensure that the damaging jobs tax proposed by the previous Government will be substantially reversed in a way that is entirely consistent with the pledges that my party made in advance of the general election. We are pleased to be able to do that.
I want to address a couple of points of fact that were raised by the hon. Member for Nottingham East. The regulations that will increase the thresholds will be laid in late January, which is the same as would have happened under previous Governments. That will coincide with the laying of the Department for Work and Pensions benefits uprating regulations and the Government Actuary’s report on the changes. The primary threshold is increasing to £139 a week in April 2011. The secondary threshold—in other words, the employers’ threshold—is increasing to £136 a week. The hon. Gentleman also asked whether the indexations, which were announced in a ministerial statement last week, will be increased by RPI. I will save him getting out his calculator, because the answer is yes.
With those clarifications and points, I hope that clause 2 will stand part of the Bill.

Christopher Leslie: The Minister is a good soul, who tries his best to do a diligent job for the nation and its finances, but it must be noted that those of us in opposition who want to articulate our critique of Ministers sometimes struggle to find the right language. I know that the description of arguments that may or may not be misleading, for example, can sometimes get us into the realms of unparliamentary language. I would never accuse the Minister of that, but there are some in the coalition, to whom he may have implicitly alluded when he said that the main Opposition party, as was, had set out the proposals out in the small print of its manifesto. Perhaps the Liberal Democrats were not quite as specific, but that is a second-order issue.
The fact that the coalition agreement stated that the coalition would
“stop the rise in Employer National Insurance contributions”
is shorthand and a lazy, sloppy bit of drafting, which was deliberately designed to give the outside world the impression that the change in national insurance would be reversed in its entirety. The Minister may baulk at that as a minor issue, but he has acknowledged that it might have been better to use the phrase “substantially reversed”. The £1.3 billion shortfall may be short change to some in the Treasury, but it is a significant amount of money. Some employers may have expected it in return, but it did not come back as a result of the rhetoric used by the parties in the Government.

David Gauke: I would be grateful for some clarity from the hon. Gentleman. Am I correct in thinking that it remains his party’s policy that it would not reverse a single penny of that increase?

Christopher Leslie: I am not sure at this stage of the Parliament. I do not have the massed ranks of Treasury officials that the Minister has at his disposal, and the calculator on my iPhone 4 does not allow me to give a commitment to a projection of what may or may not happen in the next Parliament. All I know is that the coalition agreement pledged to stop the rise, but that is not what is happening. The Minister has tacitly had to acknowledge that that is the case and I will accept that as an apology. It is always the case that the truth will out in the detailed scrutiny of legislation, so I am happy to proceed. I just wanted to emphasise that point at this stage.

Question put and agreed to.

Clause 2 accordingly ordered to stand part of the Bill.

Clause 3

Christopher Leslie: I beg to move amendment 8, in clause3, page2,line2,leave out ‘50’ and insert ‘90’.
Amendment 8 is short and simple, but it may require some explanation. Clause 3 refers to the Social Security Administration Act 1992 and the percentage rates that form part of the health service allocation. The Bill seeks to change the additional primary percentage rate and the additional class 4 percentage rate from 100% to 50%. The additional rate in both cases is being increased from 1% to 2%. The Government’s intention is that the same quantum of money raised by the original 1% additional rate should continue to go to the health service allocation, but that the revenue from the additional 1% should go not to that allocation but to the general national insurance fund.
The clause and the amendment are crucial in many ways. The clause reminds us that expenditure for the national health service, which is cherished by many of our constituents throughout the country, is at the front and centre of people’s minds during general elections and beyond, because they want to protect NHS investment. The clause and the amendment give us the opportunity to discuss the sums of money allocated to the NHS. The NHS benefited considerably from the 13 years of Labour Administration when increases in its resources grew at a rate never before seen. We have seen great improvements in the quality of care.

Kelvin Hopkins: It was absolutely necessary that the expenditure increased at that rate during that period. Is it not the fact that health service expenditure when we came into office in 1997 was so appallingly low that we had to do something about it?

Christopher Leslie: Indeed, that is absolutely the fact. My hon. Friend will remember that in 2003, the then Chancellor of the Exchequer felt it necessary to go even further and boost NHS investment above and beyond that which normally resulted from spending review processes. The introduction of the additional 1% of national insurance came with hypothecation—something that the Treasury traditionally resists, but it acquiesced in that case; the money it raised was earmarked for the health service allocation. That is certainly something of which I am very proud.
It is important to note that the Bill seeks for all the additional revenue from all that extra 1% to go generally to the national insurance fund. We have heard this morning that the fund is already in healthy surplus and that it cannot be used for current expenditure, but that it could perhaps be loaned back to the Debt Management Office and, in turn, be used to fund certain capital expenditure or infrastructure expenditure.
It is worth noting that in the spending review the Chancellor and the Health Secretary did a bit of double counting on the changes to the national health service budget, because, as hon. Members may recall, over the four-year period the definition of NHS health care has changed. Whereas the Conservative party manifesto and the coalition agreement promised that the NHS would grow “in real terms” year on year, in reality that is not the case. The Government are counting £950 million on average over those four years, but that money is actually for social care and social services, and would otherwise have been line-itemed in a different part of the nation’s account—local government social care expenditure. By changing the classification with a stealthy accountancy trick, they are somehow able to claim that there is a real-terms rise in the NHS budget of 0.4%. But on the traditional basis, looking beyond the spin, the NHS will receive a 0.54% real-terms cut.

Graham Brady: Order. The hon. Gentleman has taken us quite some way into the realms of NHS funding. Could he perhaps come back a little closer to the detail of his amendment?

Christopher Leslie: Indeed, Mr Brady. I appreciate your reining me in slightly, but it is important that we note that the 0.54% equates to a £500 million shortfall. That figure is important, because, in essence, it is the amount represented by my amendment.
The amendment seeks to take four fifths of that extra one percentage point rise in national insurance—essentially moving from a 50% take to a 90% take—so that the £500 million shortfall in the Government’s promise of a real-terms increase would have to be delivered to the NHS allocation through the national insurance change. In shorthand, the amendment is designed to keep the Government to their word, and keep Ministers to their promise of a real-terms increase in the NHS budget.
 Kelvin Hopkins  rose—

Graham Brady: Order. Before I call Mr Hopkins, I ask him, too, to be punctilious in tying his points about the NHS directly to the amendment.

Kelvin Hopkins: Thank you for that advice, Mr Brady.
I support my hon. Friend by saying that hypothecation is generally not supported by the Treasury or by most Members, because we want taxation to be spent as appropriate and as needed, particularly at this time. Although the contributory principle that underlies national insurance contributions is not as pure as it used to be, the amendment retains that contributory principle in the national insurance fund.

Christopher Leslie: Quite; and it is important to note that, as the Bill states, there is now a well trodden path where national insurance contributions may be vired to the health service allocation. The point that we are debating today is the proportion of those additional rates of national insurance that ought to be allocated to the health service allocation. It is important that we reflect on those amounts, and I am attempting to press the Minister on that point. My calculation is that, roughly speaking, there is a £500 million shortfall in what would be needed for the Government to keep their promise of a real-terms increase in the NHS health care budget. That is based on the traditional definitions, had they not made that slight double-counting change on social care.

Gavin Shuker: Is not the amendment even more important given that the national health service will pay additional levels of employer’s national insurance contributions?

Christopher Leslie: That is indeed true. The Government have already allocated some of that money to specific items of expenditure. We may come to that point later. The amounts we are talking about are needed by the national health service for several reasons. First, the drugs budget in the NHS is considerable and traditionally has more inflation than most other areas of the economy. Medical technologies are changing apace and they too require significant investment. Our ageing population means that a real-terms increase in the national health service budget is needed and it is something that the general public expect and have voted for historically. Again, they may have felt that they were voting for the parties now in government under the illusion that they would be getting a real-terms increase, but detailed exploration of what is happening to the national insurance revenues and other NHS allocations shows that the Government are falling short of that.

Heidi Alexander: My hon. Friend mentions public perception. I feel that the public understand the need to pay employer’s and employee’s national insurance contributions on the basis that they are going towards a service that they value greatly. Does my hon. Friend share my concern that perhaps this move away from that norm muddies the water somewhat in terms of the public’s perception of what national insurance is used for?

Christopher Leslie: Yes; it would be useful for the Treasury to embark on a fresh wave of public information about national insurance more generally because there is a lot of confusion among members of the public about where their money goes. For a start many do not recognise that there is a pay-as-you-go element. They sometimes feel that the money is paid into a fund, invested for the long term and then called upon at a later date, which is not the case. There is an understanding that there is some NHS amount in that, which is, essentially, the point of our debate today. The amendment would ensure that 90% of that additional revenue was allocated to the NHS.

Stephen Williams: May I again help the hon. Gentleman with his history? This time it is Labour history. In 1947, when the second greatest Welshman of the 20th century, Aneurin Bevan, was drafting the National Health Service Bill, he was determined to move away from the contributory principle in health care, which is what many people had had to do until then. He was determined that the NHS should be funded from general taxation, not national insurance.

Christopher Leslie: I am intrigued by that Liberal Democrat intervention, which suggests that we might expect an amendment from the hon. Gentleman on Report that would go even lower than the 50% level set out in the Bill. Surely he would support at least 50%, but I expect he will fall into line on Thursday behind the Conservative Front Bench. [ Interruption. ] “We shall see”, say voices off. We shall indeed see. On this issue we were promised a real-terms increase, but that is not what the Government are delivering. We need the amendment to keep them to the investment that will be necessary.
When the Prime Minister said in his speech to the Conservative party conference: “The NHS—protected”, in that classic staccato way that leaders tend to speak at party conferences, it turns out that that was not the case. The Chancellor of the Exchequer said:
“This coalition Government made a commitment to protect the NHS and increase health spending every year. Today we honour that commitment in full. Total health spending will rise each year over and above inflation.”—[Official Report, 20 October 2010; Vol. 516, c. 959.]
Yet the small print shows that the Government are around £500 million short on that. There has been a series of criticisms from many notable individuals. For example, Dr Peter Carter, the chief executive of the Royal College of Nursing, has attacked the urban myth that the NHS is being protected, stating:
“The evidence we have gathered is quite clear: that is not the case.”
The Royal College of Nursing points out that there are 27,000 potential redundancies and that posts are being removed across the national health service. In my constituency the ambulance service is very worried about the shortfall from the real-terms increase that is implicitly promised by the Bill and the other package of measures that the Government have put together. The service may have to reduce the number of ambulance staff from 3,000 to 2,600. Those are significant cuts. Dr Peter Carter has said:
“The public should be really concerned about the potential impact to the NHS. I predict waiting will rise. It won’t be too long before people start asking what is going on.”

Graham Brady: Order. I sense that the hon. Gentleman is moving towards a conclusion, so I am being quite tolerant.

Gavin Shuker: Does my hon. Friend agree that a good way of conceiving of the clause in the context of the amendment is that although money is being taken away from the NHS by the changes, up to 90% would be given back?

Christopher Leslie: Yes, and it is important that we understand what the Bill does. The move from 100% to 50% would essentially freeze the amount in quantum terms that is going to the NHS. Through the amendment we are saying that the Government are falling short of their promise to give a real-terms increase, which is why the figure 90 needs to be substituted in the Bill. Good reasons exist for doing so; for example, Ministers have broken their promise to the Royal College of Midwives for the 3,000 extra midwives they said would be delivered by 2014. According to the Royal College of Midwives, the Government said—

Graham Brady: Order. This is not a general debate on health policy. I ask the hon. Gentleman to return to his point or move to a rapid conclusion.

Christopher Leslie: Obviously, Mr Brady, I accept your entreaties, and it is important that we look at things specifically in terms of the amendment. Moving from 50% to 90% in the Bill may enable Ministers to keep their promise to deliver those 3,000 extra midwives. That is all I seek to do; I do not want to detain the Committee in any way, because that is not my role here today.
It is important to recognise that significant issues face our NHS, and the amendment would at least help to address them. I hope that the Minister admits that the sophistry of Government accounts is such that they fall short of a real-terms increase, and that an amendment such as this is necessary to ensure that the Government keep their promises.

David Gauke: I thank Opposition Members for tabling the amendment. It may help if I provide some history to put it in context. Hon. Members know that during the 2003-04 tax year there was a 1% increase in national insurance contributions, and the introduction of a new national insurance contributions liability—the additional rates—on earnings above the upper earnings limit and upper profits limit. The allocation of the additional rates is the subject of the amendment. In 2003, the whole of the increase was earmarked for improvements to the NHS, and the legislation reflected that policy with the whole of the additional rate being allocated to the NHS, as well as the 1% increase in the main rates of national insurance contributions on earnings below the upper earnings and upper profits limits.
Following the election, the coalition Government confirmed in our programme document that we would increase the rates of national insurance contributions by 1%, but that we would reverse the most significant impacts of those rises through increases in the employees’ and employers’ thresholds. The Government and, as far as I am aware, the previous Labour Administration when announcing the increases in the pre-Budget reports of 2008 and 2009, did not at any stage announce that the 1% increases are specifically for the NHS. The Government have said that they will increase NHS spending in real terms in each year of the Parliament. We can afford to do so without additional funding from the national insurance contributions increases as proposed by the amendment.
In the emergency Budget on 22 June, the Chancellor announced that from April next year we will re-link the basic state pension to earnings. Pensioners will also be protected by the triple lock, which will guarantee each and every year a rise in the basic state pension in line with earnings, prices or a 2.5% increase, whichever is greater. I know that this is a point that we debated earlier, but although the national insurance fund is currently in surplus, the commitment makes it sensible for the whole of the 1% increase to be channelled into the national insurance fund rather than the NHS.
If I may, I shall address one or two points that arose in the lengthy debate we have just had. The hon. Member for Luton South made a point about the impact of the national insurance contributions rise. Due to the increases in thresholds that reverse much of the effect of that, that will indeed reduce the burden on the NHS. I am grateful to the hon. Gentleman for drawing attention to that point. It will enable us to fund new cancer drugs by up to £200 million per year.

Gavin Shuker: Is the Minister saying that the net effect of the changes will be to reduce the amount of employers’ national insurance that the NHS is paying overall?

David Gauke: It will reduce the amount that the NHS is paying as compared with the plans that we inherited, yes. Would we like to do more? Of course we would always like to do more, but I am afraid that those are the plans that we inherited and the NHS would be facing a much greater burden had we not been able to reverse much of that.
A point was raised about social care. The additional expenditure we found for social care—an additional £2 billion in all, with £1 billion coming from the NHS—is very important. It will pay a vital role in helping to keep people healthy and independent, and we are proud of that.
On the issue of ring-fencing the NHS, Mr Brady, you will be pleased to know that I have no intention of going into a detailed speech on NHS spending. We are proud that despite the very difficult circumstances we are in, we have been able to protect health spending. If the hon. Member for Nottingham East is supportive of that, then we welcome it. I have to point out, however, that it was not that long ago that the then shadow Secretary of State for Health, now the shadow Secretary of State for Education, said:
“It is irresponsible to increase NHS spending in real terms within the overall financial envelope”
that the Chancellor was setting. What is more, not long ago, the current shadow Chancellor said in respect of the policy of ring-fencing NHS spending, that there was
“no logic, sense or rationality”
to the policy.
I am pleased that the Opposition appear to have changed their approach. We are able to ring-fence NHS spending without an amendment relating to the additional funds raised through national insurance contributions. I therefore recommend that the Committee rejects the amendment, should it be pressed to a Division.

Christopher Leslie: I am surprised that the Minister did not really address the issue of the double-counting of the social care element, because that is absolutely the crux of why we needed to table the amendment in the first place. He ought to have confirmed that had we been following the previous classification of NHS health care expenditure, that equates to a 0.54% real-terms cut in the NHS budget.
I would also have been grateful if the Minister had confirmed my calculations that in order to bridge that gap, and return to the 0.4% real-terms increase that the Government claim to be pursuing, would have equated to roughly £500 million. That was the purpose of the amendment. Clearly, the Government seek just to rebut it, and to deny that they are reducing the health care budget in real terms, but the evidence is actually there, not just from the comments that I have made, but from the real-life experience of health service users and health service staff who report daily the squeeze that they are feeling on the NHS allocation. We will clearly need to return to the issue on Report.
I want to look in more detail at the specific amounts of money. The Minister has not been able to detail the rationale for the change in the accounting for social care, so we need to burrow deeper into it. The clause is a central component of the Bill and I am not content with the Minister’s simple claim that all is fine and dandy, and that real-terms increases are happening. That is not what people are experiencing, nor is it what we see in the reports when we look at the real accounting arrangements.

Kelvin Hopkins: I support my hon. Friend’s point. Real-terms increases are absolutely necessary to the health service to retain and support the level of service, not only because, with an ageing population, there are more demands on the health service, more techniques in medical treatment and more drugs on the market, but because labour intensity in the health service cannot be reduced. Therefore, to ensure pay and pay increases that are comparable to the rest of the world, we have to have above-inflation increases in health service spending to keep pace with necessary pay.

Christopher Leslie: Absolutely, and that is a point that the Conservative and Liberal Democrat parties clearly do not get. They do not understand it and have not figured out what a real-terms increase in the NHS would entail. They panicked. They must have thought, “Quick, where can we steal a little bit of money here and there to make the figures appear to add up?” As on so many different fronts under this Administration, the truth is bursting out of the seams as the stitches begin to pop on the edges of the coalition’s garments.

David Hanson: They have no garments—they are wearing the emperor’s new clothes.

Christopher Leslie: Indeed. The emperor has no clothes, as my right hon. Friend rightly says. I give way to the emperor.

David Gauke: I merely wanted to point out that the hon. Gentleman’s metaphor is somewhat threadbare.

Christopher Leslie: I realise that the Minister may be a little chilly in this Committee Room. Many gentlemen have retained their outer garments, but my point is that the arguments of the Conservative and Liberal Democrat parties are falling apart. They have not kept to the real-terms increase in the NHS budget and we will certainly want to return to the argument on Report. We will seek to refine the precise details, so I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Graham Brady: We have had a wide-ranging debate, so we should move on without further debate on clause stand part.

Clause 3 ordered to stand part of the Bill.

Clause 4

David Hanson: I beg to move amendment 1, in clause4, page2,line9,leave out paragraph (b).

Graham Brady: With this it will be convenient to discuss the following: amendment 7, in clause4,page2,line10,leave out
‘not in any of the excluded regions’
and insert
‘within a local authority area which features on a list of local authority areas drawn up at the discretion of the Secretary of State for the purposes of this section’.
Amendment 2, in clause4,page2,line21,leave out subsection (5).
Amendment 5, in clause4,page2,line21,leave out
‘Greater London, the South East Region and the Eastern Region’
and insert
‘the 350 constituencies with the lowest percentage rate of unemployment as defined by the Department of Work and Pensions on the date of Royal Assent’.
Amendment 6, in clause4,page2,line21,leave out
‘Greater London, the South East Region and the Eastern Region’
and insert
‘the 350 constituencies with the lowest percentage rate of public sector employment as defined by the Department of Work and Pensions on the date of Royal Assent’.
Amendment 3, in clause11,page6,leave out lines 24 to 29.
Amendment 4, in clause11,page6,leave out lines 35 to 41.

David Hanson: I, too, welcome you to the Chair, Mr Brady. Over the past few weeks, I have spent more time in this room than I care to recall, with the hon. Members for Scarborough and Whitby and for Bristol West, and my hon. Friend the Member for West Ham, and this is the coldest I have found it. I am sure it will warm up over the course of the day.
May I say at the outset two things that may seem strange for an Opposition spokesman? First, we welcome the holiday proposal on national insurance contributions. It is innovative. It may help support new businesses and it will, I hope, be of value. If the Minister’s prediction that 400,000 employers and 800,000 employees will seek benefit from it over the next three years materialises, we will certainly welcome it. We hope that areas such as mine in north Wales will benefit from the scheme and that if new businesses come forward, are sustained and survive, it will provide them with a great deal of help.
Without politicising the initial discussion, we face some big challenges over the next three years. We face a £1 billion cut in my area in Wales to the National Assembly for Wales’ budget. We face major cuts in public spending across the board—in local councils, in capital spending, on education—that will cause tremendous pressures on existing employment both in the public and, if I may say so, in the private sector, which will face the knock-on effects of public spending cuts in areas such as capital expenditure, construction and Building Schools for the Future.
Any steps that the Minister can take to help alleviate the great pain that will happen in the next three years, because of public spending cuts, have to be welcomed. If they help to encourage and develop new employment, that has to be a good thing.
The Office for Budget Responsibility’s growth forecasts have been downgraded in the past six months from 2.6 to 2.1%, so we need to face the real pressures that are ahead. We can debate, and we have debated, the different political approaches of the Opposition and the Government on public spending, but if the scheme helps, it would be a positive thing, and I welcome it. I hope that is taken in the spirit of conciliation in which I put it forward.
Where we disagree, and where the amendments go to the heart of that disagreement, is in relation to how that cake, which the Minister has determined to help support new businesses, is distributed. He has confirmed in the Bill, in the evidence sessions and on Second Reading that some £1 billion will be spent on the scheme over the next three years. My hon. Friend the Member for Walthamstow ably questioned the Minister in the evidence session about whether we use those projections, whether they will be met and the basis on which they have been put forward. We can debate that, but if the Minister’s scheme does what it says on the tin, and if it achieves the objectives that he and his officials have set out, we are expecting some £940 million to be spent in benefit of the scheme, with an administration cost to the Government and businesses on top.
The amendments go to the heart of how that £1 billion is spent. Given that we are cutting back regional development agencies, and given that we are cutting back on public spending in general, let me put all that to one side for a moment, and let us not argue about those issues. They are important issues, and they affect the economy, but let us put them to one side. Let us look only at the opportunity that the Minister has to invest £1 billion of taxpayers’ money, from the whole of the United Kingdom, into areas that help generate new employment. Let us look at what the Minister’s choices have been with that £1 billion, and whether they meet areas of need, of deprivation, of high unemployment, and of high impact of public spending cuts—one of the Minister’s objectives—and whether it is, in the spirit of equity and fairness as well as economic necessity, best spent in that way.
I do not want to stray into later amendments, Mr Brady, but, because it is in the context of today’s debates, I will suggest later on that we set a budget for the expenditure over the three-year period of whatever that will be—if it is £1 billion, we set it. I will suggest that the Minister monitors that expenditure, and I will suggest that the Minister looks at the effectiveness of how that resource is spent.
If we accept the Bill as it is drafted, large swathes of the United Kingdom will receive its benefit. My area in north Wales, the area of my hon. Friend the Member for Nottingham East, and the areas of the hon. Members for Cleethorpes, for Burnley, for Hexham and for Central Devon will all be able to access that resource to help support new businesses for that three-year period. They will be able to have that benefit of £5,000 per employer, which might encourage businesses, which might help alleviate the public spending cuts and which might have an impact in those areas. Yet the areas of my hon. Friends the Members for Walthamstow, for Lewisham East, for Luton North, for Luton South and for West Ham, those of the hon. Member for Watford, the Minister himself, and the hon. Member for West Suffolk, who is not in the room, but is on the Committee, will not be able to access that resource. Is that fair and equitable? If we are going to spend that resource, is that its best use in order to tackle the issues that we face?
Amendment 1 addresses the total exclusion of London, the south-east and the eastern region, and seeks to ensure that those areas are included in the scheme. If we accept the Bill as drafted, those regions will not be able to access the benefit at all; the £940 million will be spread over the rest of the United Kingdom. The Minister could have determined that the same budget would be available for the whole of the United Kingdom—and he could still do that if he accepts later amendments—which might mean that there would be a shorter time scale for that budget to be spent, or that there would be fewer businesses to secure the budget. He need not, however, increase the amount of the budget; he can simply spread it across those three regions as well.
I will pick London to begin with; of the top 12 most deprived local authorities, as outlined in the economic deprivation index, no fewer than seven such authorities are in London—I will return to my hon. Friends the Members for Luton North and for Luton South in a moment because those areas are also important, but I want to focus on London for now. The scheme will not apply to the boroughs of Hackney, Newham—the borough of my hon. Friend the Member for West Ham—Tower Hamlets, Islington, Barking and Dagenham, Haringey or Lambeth. By any stretch of the imagination, those boroughs are seven of the most economically deprived in the country.
In his statement on 6 September, the Exchequer Secretary said:
“The Government are determined that all parts of the UK benefit from sustainable economic growth".—[Official Report, 6 September 2010; Vol. 515, c. 1WS.]
I cannot see how that will happen if we exclude those three regions at a time of massive public spending cuts, very difficult challenges and real issues of regional development ahead of us. If those regions are excluded from the payment holiday, there is no opportunity for those deprived boroughs to access that scheme.
However, do not just listen to me—as ever, I am a bigoted Labour politician, I have my views, stood for election and opposed the Government, and this is me, speaking as a Labour politician. I have stretched the hand of friendship out to the Minister and said that we support the Bill, but do not just listen to me; look at the evidence that has been presented to the Committee. As paragraph 1 of the written evidence from the Thames Gateway London Partnership states:
“The Thames Gateway London Partnership (TGLP) believes that the National Insurance contributions holiday should be extended to cover London and the South East.”
It is the first thing that the TGLP said, and the evidence continues with this damning statement, which is the important part:
“A failure to do so demonstrates a lack of understanding about the diversity of the London Thames Gateway’s economy and the importance of the London Thames Gateway as the driver for the UK economy. The exclusion of London and the South East from the Bill is inconsistent with the intention”.
We can also look at last week’s evidence session with Mr Pichon of Wenta. In answer to my hon. Friend the Member for Luton South he said that, and this includes London as well,
“across the whole of the east, there are areas of high deprivation. Just to ignore them, saying, ‘You are not going to cover that area with a scheme such as this,’ is unfair.”––[Official Report, National Insurance Contributions Public Bill Committee, 2 December 2010; c. 20, Q46.]

Richard Harrington: Does the right hon. Gentleman also agree with Mr Pichon’s view that all employers’ national insurance contributions should be abolished?

David Hanson: No, I do not. With my hon. Friends, I have just supported a rise in national insurance contributions, so self-evidently, I will not support a position that abolishes them.

Mel Stride: Does the right hon. Gentleman agree with Mr Pichon’s statement that a national insurance holiday would be totally ineffective anyway?

David Hanson: No, I do not. We look at the evidence, listen to what people say, take bits of it that we agree with—[ Interruption. —and that is the nature of the business that we are in. The hon. Gentleman knows that part of the objective is to look at the issue. I do not agree that that scheme would be ineffective. I have said, openly and honestly—this is a big thing for an Opposition Member to say to the Minister—that it is a positive scheme, which may be helpful. If it helps the 400,000 businesses, and if it helps 800,000 employees to get into and sustain employment, it will be a good scheme. Time will tell, however, and later we will debate amendments that will give us an opportunity to assess the effectiveness of the scheme.
I criticise not the objective of the scheme but its application, which is unfair because it means that London, the south-east and the east will not benefit. On Second Reading, the Minister said—he has said this in other formats, and he may even have said this in notes to the Bill that I have seen in the past—that the reason behind the policy is that
“areas outside London, the south-east and the east are more reliant on public sector employment.”—[Official Report, 23 November 2010; Vol. 519, c. 200.]
The Minister has, therefore, admitted that when the impact of massive public spending cuts hits, it will hit areas—my area, and those of other members of the Committee—outside those three regions harder than it will hit London, the south-east and the east, but the information does not stack up. In many ways I would love it to do so—if that were the Minister’s honest intention, and his belief—but I do not think that the facts bear that out. The constituencies of Oxford East, of Luton North, of Lewisham East, of Canterbury, of Southampton, Test, of Eltham, of West Ham, of North Thanet, of Hackney North and Stoke Newington, of Tooting, of Islington North, of Dulwich and West Norwood and of Brighton, Kemptown will all miss out on the scheme, but they are in the top 10% for levels of public sector employment in the country.
If I look at the list of public sector employment by constituency across the whole of the United Kingdom, no fewer than 23 of the top 100 constituencies for public sector employment—my maths tells me that that is 23%—are in London and the south-east. Not only the constituencies that I have mentioned, but those of Worthing West, of Leyton and Wanstead, of Hastings and Rye, of Portsmouth South, of Lewisham, Deptford, of Maidstone and the Weald, of Greenwich and Woolwich, of South Cambridgeshire, of Cambridge and of Winchester are all in the top 100 for the highest levels of public sector employment.
On the Minister’s logic, nearly one quarter of the constituencies that are in the top 100 for dependence on public sector employment will not benefit from the scheme, which he is establishing because he is concerned about the impact of public spending cuts on public sector employment. It is not only my hon. Friends who represent those constituencies but, as he knows, Members from other parties as well. That may be why some of his colleagues have also expressed concern about the implications of the policy for those regions.
Leaving aside the arguments from public sector employment, and from local authority deprivation, if we look strictly at unemployment and how it is spread across the country the Minister knows that the employment rates of the regions that are excluded are much more challenging than those of the regions that are included. Unemployment rates from the International Labour Organisation show that across the United Kingdom no area has a higher unemployment rate than London, at 9%. We face a situation where the Government are bringing forward a scheme to help new businesses, but the area with the highest unemployment rate in the country is not included in that scheme. The jobseeker’s allowance claimant rate from the Office for National Statistics shows us that unemployment in London is higher than it is in the south-west, in the constituency of the hon. Member for Central Devon; it is higher than it is in my area, Wales, where it is 3.6%; and it is higher than it is in Scotland, in the east midlands and in the north-west. Indeed, it is above the UK average of 4%. The unemployment rate in the constituency of my hon. Friend the Member for West Ham is 6.8%. In Tottenham it is 7.7%. In Camberwell and Peckham it is 6%.
Let me pick three random constituencies. I told the Minister on Second Reading that I have nothing against the people of Tatton, the seat of the Chancellor of the Exchequer. They once elected me to office as a local councillor. I led the local council that covered the Tatton constituency. They are fine people. Their unemployment rate, however, happens to be 2.1%. That is significantly lower than in the constituency of my hon. Friend the Member for West Ham, which currently has an unemployment rate of 6.8%. What is the logic of trying to start new businesses across the whole of the north when, for example, Tatton has an unemployment rate of 2.1%? Richmond in Yorkshire, the seat of the Foreign Secretary has an unemployment rate of 1.8%. Unemployment in Derbyshire Dales, the seat of the Government Chief Whip, is 1.6%.
My hon. Friends the Members for Lewisham East, for Walthamstow, for Luton North, for Luton South and for West Ham all face higher levels of unemployment. Their constituents will not be able to avail themselves of this scheme, which they will be paying for through their taxes. So people in work in Walthamstow, Lewisham, West Ham and Luton will pay taxes to put money into the Treasury coffers to transfer wealth to support new businesses in Tatton, Richmond and Derbyshire Dales. I have no problem with the people in those three constituencies, but if the Minister wants to focus this issue on a scheme I welcome, I remind him, he needs to focus it in a way that impacts on the areas of highest deprivation and highest unemployment as well as those who will benefit generally.

Stella Creasy: Does my hon. Friend agree that the scheme could also be a double whammy to my constituents, a lot of whom work within the public sector and who now face redundancy? Even if they were to try to move into the private sector and start up new businesses they would be doubly penalised by schemes like this because they are being excluded.

David Hanson: My hon. Friend is right. Let me remind the Minister what I am arguing for initially. I argue in amendment 1 that London, the south-east and the east region should be included in the scheme. I am simply asking him to make the scheme a national scheme and to make it fair so that all those constituencies like Walthamstow can access it. If that means that the scheme runs for two years instead of three, so be it. If that means that the scheme runs for three years but is capped at £940 million and when that money is gone, it is gone, so be it. I have not tabled amendments to reduce the length of time of the scheme, but I could have done. I might even do so on Report, depending on what the Minister says.
I am not asking the Minister to spend more money. He has estimated that it would cost around £660 million if it were extended on the current level for those areas. That may be the case. The Minister could retain the existing amount of resource for the scheme and spread it over a thinner base to encourage new businesses in those areas. There is no logic for him, based on deprivation, on unemployment or on the concerns of public sector employment, to exclude three regions which have a higher level of public sector employment, a higher level of deprivation and a higher level of unemployment.
These are random constituencies, but they are represented by Conservative and Liberal Cabinet Ministers: Berwickshire, Roxburgh and Selkirk has 2.8% unemployment; Tatton has 2.1% unemployment; Richmond has 1.8%. Derbyshire Dales, Rushcliffe, Sheffield, Hallam, Sutton Coldfield, North Shropshire, Inverness, Nairn, Badenoch and Strathspey all have low levels of unemployment, lower than those in West Ham, Luton North, Luton South, Lewisham East and Walthamstow, the constituencies of my hon. Friends who are in Committee today. The hon. Member for Watford has a current unemployment rate of 3.6%. His constituency will not benefit from this national insurance holiday and yet the constituency of the Chancellor of the Exchequer, who has an unemployment rate of 2.1%, will. Is that a fair and equitable way to distribute the scheme today?
No one on the Opposition Benches who represents a seat in the east region, London or the south-east has a lower unemployment rate than the Chancellor of the Exchequer, who will benefit from the scheme in Tatton. I have nothing against the good burghers of Tatton, but, if we are trying to encourage businesses, it seems inequitable that those in Watford will not benefit from the scheme while those in Tatton, which is adjacent to your constituency, Mr Brady, and, although it has pockets of deprivation, has great pockets of wealth, will benefit.
We have tabled three sets of amendments to give the Minister an opportunity to think about the issues in detail. Amendments 1, 2, 3 and 4 would remove the three excluded regions so that the Bill would apply to them. Amendment 7 would ensure that a local authority area was considered at the discretion of the Secretary of State. I will return to that in a moment. Amendment 5 would insert
“the 350 constituencies with the lowest percentage rate of unemployment as defined by the Department of Work and Pensions on the date of Royal Assent”.
Amendment 6 would insert
“the 350 constituencies with the lowest percentage rate of public sector employment”
that are excluded from the scheme as a whole.
My preference is to make the scheme UK-wide so that every part of the United Kingdom can access the holiday benefits in a similar way to my area and to others represented on the Committee. I hope that the Minister will reflect upon that preference before Report. If he does not reflect upon it, will he consider chopping the scheme up in a different way? It could be done by the unemployment rate—it would be doable by postcode in constituencies, similar to the way it is being done by region—or by the percentage of public sector employment, or by the discretion of the Secretary of State for local authority areas.
Business births are also relevant. The Office for National Statistics released its “Business demography 2009” last week, which is helpful for the Committee. It notes that the percentage of business births in the east and south-east regions of 9.9% and 9.7% respectively were lower than the national average of business births. There have been fewer business births in the south-east and the east over the past year than in the north-east, the north-west and the Yorkshire and Humber region. There are fewer business births in the areas represented by my hon. Friends the Members for Luton South and for Luton North than in the north-west, which is your region, Mr Brady, and which is adjacent to mine. My region depends on north-west employment—I am one and a half miles from the English border, so business births in the north-west employ people in my area. Business births in those regions are higher than those in the regions that the Bill excludes for new employment.
There are more business births in London than in those regions. The rate for business births in London is 12.6% compared with an average of about 10% in the north-east, north-west and Yorkshire and Humber. The point that is important to this discussion, however, is that the level of business deaths in London of 13.7% is higher than anywhere else in the United Kingdom.
The east and south-east regions have fewer business births than the regions—the north-west, the north-east and Yorkshire and Humber—that are included in the Bill’s scheme. Moreover, although London has a higher level of business births, it also has a higher level of business deaths than any other region in the country. Does that not give the Minister a sense of logic? If we are trying to help maintain businesses at the start of their difficult lives, particularly in areas with a high level of public sector employment or of unemployment, or of deprivation in general, should not the logic driving the Minister to his choice of regions say that he should consider including London in the scheme? If schemes are dying quicker in London than anywhere else, and if they are being born slower in the east and the south-east than anywhere else, surely a scheme designed to nurture new businesses by giving them a £5,000 holiday in their initial three years should focus on those three areas.
I want now to conclude my initial remarks, because my hon. Friends also want to speak on these issues. I want to help and support the Minister by saying that, if he were to accept amendment 7, the Secretary of State could, at any point, apply the scheme to specific local government areas that he feels need help and support. To give him one example, which is not in London or the south-eastern region, but it could have been, just before February this year there were major redundancies at the steelworks in Redcar in the north-east. If such a scenario were to happen in London, the south-east and the east regions, which is perfectly possible, the Minister might want to apply the scheme to a particular local authority area to help with a particular challenge following particular levels of redundancy.
I do not want to pick on any particular business in London, the south-east or the east, and put a scourge on them, but I am sure that hon. Members can think of sectors that are very dominant in a town, that are very important to the economy of an area, and that could, given the challenges that we face over the next three years, go belly up. We could find massive redundancies in a particular area. The Luton area could be hit by the failure of a particular business—say, Vauxhall Motors, which I know well, because there is a Vauxhall plant in my constituency. I do not wish to put a blight on the area, but such a situation could happen; anything could happen. In the event of a major employer in the borough of Luton having difficulties, would it not be sensible for the Minister to be able to apply the scheme to that borough, to help create new employment and replace the employment that was lost?

Gavin Shuker: My right hon. Friend, of course, remembers the chain of events at the turn of the century —in about 2001—when Vauxhall Motors ceased manufacturing cars in Luton; that had a very serious, long-term effect on the local economy. Obviously, the provisions of which he is speaking would allow greater flexibility to recognise that. In Luton, the local authority would be directly affected, but the east and greater south-east perhaps would not.
 Mr Hanson  rose—

Graham Brady: Before the shadow Minister responds to that, he has been entirely relevant, in my view, in all of his points, but it has not escaped his attention, nor the attention of the Committee, that the nature of these amendments allows for exhaustive lists of comparisons. I hope that he will not illustrate his point with too many of them.

David Hanson: I am grateful to hear that I am in order, Mr Brady; that is always good to know. As the Government Whip will know, I have the ability to talk for ever to try to keep the business of a Committee going, but this is not one of the occasions on which I am trying to do that. I am trying to indicate to the Minister our real concerns about not the principle of the scheme, but its application. It currently excludes three regions represented by five of the seven Labour Members on this Committee, and by some Government Members present, too.
My hon. Friend the Member for Luton South makes a valid point. My point is that if the Minister were to accept amendment 7, which is on local authority areas, he would have the power to apply the scheme to a borough in London, the south-east or the east in the event of a particular situation, even if he chose to continue excluding London, the south-east and the east. Such a situation, although we do not want to see it happen, might be the consequence of a tightening of the fiscal position, an economic downturn, or a lack of public confidence; or a major employer in a particular part of those regions could find itself so challenged that it ups sticks. What tends to happen in such situations is that businesses, companies and other local authorities go into the area to help create new jobs and find new employment. Would that not be a useful scheme for the Minister to have in his back pocket?
I have no wish to put a plague on Luton, but in the event of a major employer in Luton having great difficulties and causing thousands of redundancies, would it not be good for the Minister to have the power to say that one step that the Government were taking to help mitigate the effects of that massive unemployment was ensuring the ability to designate the borough of Luton, so that it could apply, under the scheme, for a national insurance holiday for new businesses? That may help only 10, 11, 12, 13, 14 or 15 people to start a new business, but it is a tool in the armoury that could be used to help support areas in the three excluded regions.
We tabled the amendment simply to say that we want all areas to be included. We could talk about putting a cap on the amount of money or shortening the years, and all the ranges within that, so that, without increasing the cost to the Treasury, we could allow all areas to benefit, for the reasons I have mentioned—unemployment, deprivation and so on. If the Minister cannot accept that, will he split the cake via the public sector, or via levels of unemployment? If he cannot do that, can he at least give himself a power that allows him to offer help and support in the event of a major challenge in one of the boroughs or county boroughs of those three areas? Those all seem reasonable propositions.
I have tried to approach the issue in a constructive way and tried to make the case for why my hon. Friends and I believe that we need to review not the principle of the scheme, but its application, to make sure that it is generally beneficial. I find it difficult to allow the current scheme to stay in place when my hon. Friend the Member for Luton North had 2,390 people out of work last month—a 5.1% unemployment rate. My hon. Friend the Member for Luton South had 6.7% unemployment in his constituency, with 3,245 people out of work. My hon. Friend the Member for West Ham had 5,915 people unemployed last month—a 10.8% unemployment rate. My hon. Friend the Member for Walthamstow had 3,950 people unemployed, which is an 8.5% unemployment rate. My hon. Friend the Member for Lewisham East had a similar level of unemployment. The figures for Lewisham East seemed to have disappeared from my piece of paper, but I am sure that my hon. Friend will have those figures to hand in due course.
Those figures show that the scheme, in its application, does not address some of the areas where there is greatest difficulty. Having spelled that out, I hope that the Minister can reflect on the scheme in a positive way and look at those suggestions. Again, I stretch out the hand of friendship to him. I will not press the amendment to a vote. If he wishes to reflect and come back to the matter on Report, and to rephrase and look again at the scheme, we will happily take his hand. In fact, I will give him a second hand of friendship: if he changes the scheme, I promise him that I will not crow about the fact that he has done so. I will say that it was done in the spirit of co-operation, and that, discussion having taken place about the three areas—[Interruption.] My hon. Friend the Member for West Ham always takes a hard line on such matters. That is perfectly understandable, given the level of unemployment in her constituency, but she will know that if I wanted to, I could and would kick the Minister very hard, metaphorically.
We could make a very strong case as to why the Conservative-Liberal Democrat Government are ignoring the needs of the constituencies represented by my hon. Friends, but I think it better to ask the Minister to reflect on the arguments we have made. There may just be a kernel of sense in some of those arguments about how we distribute the scheme. If he reflects on that and brings back suggestions, we will simply give him our thanks and say, “Well done”; that is the purpose of the debate and the Committee.

Stephen Williams: While the right hon. Gentleman has been speaking, I, too, have been studying the Library report on the November unemployment statistics. If he looks at the map of Greater London on page 46, he will find that while some of the constituencies he has named are indeed in the top quintile of unemployment, just a matter of a mile or two away there are constituencies in the bottom quintile of unemployment. Is the flaw in his argument that our constituents are not confined by boundaries? Those boundaries are relevant to us; they are not relevant for travel-to-work patterns.

David Hanson: No, they are not, but I can say to the hon. Gentleman, because I know the area well, that the constituency of Tatton, with low unemployment, is not more than six miles at its furthest point from the constituency of Wythenshawe and Sale East, which has high levels of unemployment. We could start businesses in Tatton, and that would suck people from the estates of Wythenshawe and Sale East down into the rich pastures of Knutsford, close by. That may or may not happen, but the principle is the same in regions where the scheme applies and in regions where it does not. If there is higher unemployment in constituencies in London and the south-east than in many areas of the north, we should examine that.
I am a northerner born and bred. I represent a seat in north Wales now, but I was born in Liverpool. I lived in and represented a council in mid-Cheshire, where I grew up, for many years. There are many prosperous areas. I grew up on a council estate with a prosperous ward—the richest ward in Cheshire—not three miles away, so that fluid movement happens all over the place. If we look at the matter in any particular statistical way, there is no getting away from the fact that there are areas with high unemployment in London, the south-east and the east that will not benefit from the scheme. People in those areas may be within seven tube journeys of the Cities of London and Westminster, but it does not mean that they will benefit from employment there.
Equally, it is important that the hon. Member for Bristol West thinks about the fact that there might be some benefit in helping to generate self-employment in some areas with higher unemployment, such as West Ham, so that we build the localism that he wants and keep that money in the borough of Newham, instead of dragging it back and forward, helping commuting.

Gavin Shuker: My right hon. Friend makes a salient point about how diverse regions are, even those within a few miles of each other. He strongly makes the point that, instead of grouping regions together in such a way that there is simply a binary split between the north and the south, we need to look at smaller areas, such as those in the Opposition amendments.

David Hanson: Indeed. I have not even returned to the issue of the borders of these regions, although I may do at some point. There will be businesses on one side of the border that will draw employment from the other, and vice versa. Those are whole areas of discussions that we could, and may, have later.

David Gauke: I hope so.

David Hanson: I am sure that we can do that. The nub of the case has been made. I may return to some of these issues, depending on what the Minister and my hon. Friends say in the discussion, but my contention is: good scheme, difficult implementation. Will the Minister please look at wider implementation, along the lines set out in the amendments? If he does, we will welcome his consideration. I look forward to hearing the contributions of my hon. Friends.

Heidi Alexander: Members of the Committee will probably be pleased to know that I will keep all the layers of my clothing on; I know that there was discussion earlier about taking layers of clothing off, but given the temperature in the room, I will keep them firmly on. Members will also be pleased to know that I will not repeat the speech I gave on Second Reading in its entirety, but there are probably some salient points worth repeating for members of the Bill Committee today.
I read through the Second Reading debate on the train on the way here, and I noted that it was not only Labour Members raising concerns about the regional holiday and the exclusion of London, the east and the south-east. I can see from Hansard that the hon. Members for Basildon and Billericay (Mr Baron), and for Portsmouth North (Penny Mordaunt), asked the Minister to look at the decision to exclude certain regions. The shadow Minister talked about the 12 most deprived local authorities in the UK and the fact that a large number of them are excluded from the regional holiday. In those areas, levels of unemployment are high, and there is significant reliance on the public sector for jobs.
My local authority, Lewisham, and my constituency, Lewisham East, are not on the list, but that part of London struggles significantly with its local economy. It has the fourth smallest business base in London and more jobseekers chasing locally advertised jobs than anywhere else in the country. I understand that that is symptomatic of the nature of the London labour market, in that many people will use buses, trains and bikes every day to go to work, but that says something important about the experiences of my constituents when they go to the jobcentre. I receive many letters and e-mails, and many people turn up at my surgery, every week asking me to help them find work.
Given the importance of small and medium-sized enterprises in the local economy, and probably micro-businesses in Lewisham, the exclusion from the national insurance holiday of firms that are setting up in my constituency is seen by many to be patently unfair. As I said on Second Reading, two firms could be operating in exactly the same trade, and might have exactly the same number of employees and exactly the same profit and turnover, but the business setting up in the north would stand to benefit from an exemption of up to £50,000 in the first year, whereas the same business setting up in London, the south-east or, indeed, my constituency would not.
The point made by my right hon. Friend the Member for Delyn about business births and deaths is incredibly important. In Lewisham, only 59% of businesses survive their first three years, whereas the national average is 65%. Those businesses need support in their first few years, and many people who are setting up new enterprises would like to receive the sorts of concessions that other businesses elsewhere in the UK might.
I have discussed why the regional holiday is unfair, but it also does not do what the Government want it to do, which is stimulate private-sector growth in areas that are reliant on the public sector for jobs. Yesterday, I spoke in a debate on cuts to local government. In Lewisham and many parts of London, we envisage significant job losses as a result of the reduced funding available to local government and local councils. That will add to the number of people going to the jobcentre in my constituency, and it will be much harder for mums and dads to find local employment, which the public sector often provides. If you take the boroughs of Lewisham, Lambeth, Southwark and Croydon together, 185,000 people are employed in the public sector there; that is more than the public sector work force of Tyne and Wear. Yet that whole swathe of London is excluded from the national insurance holiday, and I cannot see the fairness in that.
The measures fail to understand the nature of the economy in London. My right hon. Friend the Member for Delyn has said that we recognise that we have the City and Canary Wharf, but just a stone’s throw away from them we have pockets of considerable deprivation. The local economy is key to those places, and anything that can be done to help stimulate the growth of private firms should be done.
I want to comment on the evidence that the Committee received last week when we met for the first time. We talked at some length about administration and the cost of doing the national insurance holiday differently, taking it down to a smaller geographical area, as opposed to focusing only on regions. We received evidence from HMRC, which told us that technically, it probably would not be that difficult to make differences between postcodes in a local area and the regions, but we were told by the Minister that, ultimately, the issue came down to cost.
The Treasury seems to say that there is a lot of uncertainty about how the initiative will work; nothing like this has been done before, and the Treasury’s memorandum refers to that level of uncertainty. Will the Minister retain some flexibility, and an open mind about whether the geographical application of the scheme could be changed, if and when evidence is obtained to show how it is operating?
During the evidence session, my hon. Friend the Member for Walthamstow robustly questioned the Minister and his advisers about the lack of information on any behavioural change that the national insurance holiday might have. I believe she asked, quite rightly, for some written communication in advance of today’s Committee. I do not know whether that has come through, but I have not seen it.
It seems that we do not know exactly how the scheme will play out, and much is based on assumptions. As my right hon. Friend the Member for Delyn said, we know that London and the south-east are proven areas of entrepreneurialism where many people want to set up a business. Will we keep some flexibility to respond to the needs of areas where businesses are being set up and where the national insurance holiday could make a difference?

Stella Creasy: Is my hon. Friend as interested as I am in the evidence submitted by the Treasury in its impact assessment suggesting that were the scheme to be extended to the entire country and include some of the areas mentioned, an extra 300,000 new businesses would be eligible? If the Government see that targets for the number of new businesses to be set up under the scheme are not being reached, would that not make the case for more flexibility so that we can tap into that ability to generate more businesses in those areas?

Heidi Alexander: My hon. Friend makes a good point; that is precisely the sort of flexibility I am asking the Minister to consider. I shall not take up any more of the Committee’s time. I ask the Minister to consider my remarks, and I look forward to the contributions of other colleagues, including those from Luton.

Kelvin Hopkins: It is a pleasure to speak under your chairmanship, Mr Brady, even though it is a rather cold day. First, I want to express my support for everything that my right hon. Friend the shadow Minister said in his powerful and passionate speech. I will reinforce what he said with some specific points about my constituency. The constituencies of Luton North and Luton South are similar in many ways and my hon. Friend the Member for Luton South and I work together in solidarity, comradeship and friendship, to support the town in every way. There are, however, some slight differences, such as in the rate of unemployment because the most affluent part of the town happens to be in my constituency, which somewhat moderates unemployment levels. In some pockets of my constituency, however, there are serious levels of unemployment and our local economy needs all the help it can get.
On Second Reading—unfortunately I did not attend most of the debate because I was detained on parliamentary business elsewhere—it was specifically mentioned that Luton North has one of the highest levels of public sector employment. That means that it will be disproportionately affected by cuts to public spending and public sector jobs. Therefore, Luton North is threatened by Government plans more than some other constituencies. I disagree profoundly with the Government’s strategy, but that subject is not for this debate.
Luton is close to other regions and towns that will not be disadvantaged by the Government’s policy on this proposal, such as Northampton in the east midlands or Milton Keynes in the southern region. Those large conurbations will have the advantage of the scheme, but Luton will not. The illogicality of the scheme is shown up by the joint town of Leighton-Linslade and Leighton Buzzard, which is close to Luton. The Leighton Buzzard part of the town is in Bedfordshire, while Linslade is in Buckinghamshire. The division between the counties and, indeed, the regions goes through that mini conurbation. I have a friend with a small business in Leighton Buzzard, and he will not understand why someone just half a mile away enjoys the advantages of the scheme, while he does not. The scheme is clearly illogical, even outside my borough.
The Government should change their position and understand the points that the shadow Minister made very strongly. Unemployment is the key problem. If I may digress somewhat, I thought that the contribution of Mr Pichon, from Wenta, in our public meeting last week was very good. He suggested that one way forward would be a substantial increase in the minimum wage, which I heartily endorse. He suggested that that could be compensated for by abolishing the employer’s contribution to national insurance. That is a radical step, but putting more money into the pockets of low-paid employees is the best way to generate demand in the economy, because they tend to spend all their money, which goes straight back into the economy, generating employment elsewhere. Tax cuts for the better-off do not make that difference.
Giving additional income to low-paid workers is the best way to generate economic recovery and bring down unemployment. The key to tackling the problem faced by the Government and the nation is to bring down unemployment, not to create it through massive public spending cuts, which will not only create unemployment in the public sector, but as we have heard from PricewaterhouseCoopers and others, it will lead to massive cuts in the private sector. There is even a suggestion that, at its peak, the Government’s strategy of cuts could destroy as many as 1.5 million jobs. That is completely the wrong direction for us to go in; indeed, I tabled an early-day motion to that effect two or three weeks ago. It has been signed by a number of my hon. Friends, but not, sadly, by Government Members.
I have made the points that I wanted to make. These exclusions are illogical. They will unfairly affect not only Luton, but many other parts of the country. Even in areas that are not quite so badly off as Luton, there will be illogicalities, which the local populations will not understand. As I said, Leighton-Linslade is perhaps the best example that I have come across in my locality. However, I think I have made my point, and I will leave the floor to other colleagues.

Gavin Shuker: It is good to be able to speak to the amendments. Obviously, Government Members would prefer a scheme that was extended across the country, but we recognise, as we heard in evidence last week, that there are restrictions on the amount that can be spent and that the Government are unwilling to shorten the time for which these national insurance holidays are in place, so we have to find another route.
Amendments 7, 5 and 6 offer innovative ways of tackling a problem that may seem distant to those of us in the Committee right now, but which is very real to people in Luton South, which I represent. I spoke about that on Second Reading. Luton North and Luton South are great places to do business. They benefit from great road and rail connections and proximity to London. Businesses really like our town. The majority—82%—of the businesses in our town are small businesses, with fewer than 10 people working in them. We have a creative work force.
Many people may choose to set up a business, but the proposals in the Bill will mean that they do not receive the equivalent of the £50,000 golden hello that they would 15 or 20 minutes up the road or railway line, and there is something profoundly unfair about that. I would have to defend that difficult situation to my constituents, so I want to speak now to the amendments that I mentioned.
When Mr Patel from the Federation of Small Businesses gave evidence to the Committee a few days ago, he answered a question on the effect of the proposals on the east, the south-east and London:
“It would obviously impact on a business when it is starting up, and when it is looking at employing its first person. It would have a behavioural impact on where it locates and what employment intentions it has.”––[Official Report, National Insurance Contributions Public Bill Committee, 2 December 2010; c. 11, Q22.]
I could not have put it better myself. The changes will have a profound effect on the east, the south-east and London—collectively termed “the greater south-east”—and that is why I sponsored an early-day motion a few months ago:
“That this House notes that the Government’s decision to introduce a Class 1 Employer National Insurance exemption for new businesses in regions other than the East, South East and London will have a negative effect on growth in those areas collectively termed the Greater South East; further notes that in areas which border, or have good rail and road links with non-Greater South Eastern towns and cities, the strategy positively encourages entrepreneurs to start new businesses away from their own communities, breaking community ties and vastly increasing unemployment; and further notes that the same strategy fails to recognise the vast disparity within the Greater South East region, where some towns and cities experience levels of unemployment and deprivation that are equal to or worse than the parts of the country that will benefit from this scheme.”
Luton North and Luton South are two areas to which the amendments speak. I am almost certain that Luton South would be one of the 350 constituencies covered by amendment 5, and that Luton North would be among the 350 covered by amendment 6. I hazard a guess that both areas fit into both camps, but the holiday would not apply in either of them, and we would therefore be at a serious disadvantage in comparison to areas that border us. My hon. Friend the Member for Luton North—my good friend—made that point well.
The proposals in the Bill will have a serious effect. There will be the £50,000 golden hello available to new businesses just up the road, but the effect on my seat will be a double, triple or even quadruple whammy. The road and rail links and the other great infrastructure that attracts businesses to Luton also represent the ability for businesses and talented individuals to move away from Luton. The public sector cuts that are coming, which will be deep and which are beginning to take shape in Luton, will further increase unemployment, and without something stepping in to increase and boost private sector employment we will be at a disadvantage.
As my right hon. Friend the Member for Delyn has laid out, the lower rates of business birth in Luton already put us at a disadvantage, and there will be a quadruple whammy for my constituents if the Bill is left unamended. The fundamental question is that the Government have put forward their position, that the changes are essential for boosting growth in areas with high public sector employment. They have said that they will stimulate the economy in those areas, and that they want the scheme to be in place so that they can rebalance the economy between the south and the north, yet we see from the Minister’s answer to a question in last week’s evidence session that that might, in fact, not be the full story:
“The reason why we have not done this nationally”—
the payment holiday—
“is because we have a constrained budget.”––[Official Report, National Insurance Contributions Public Bill Committee, 2 December 2010; c. 38, Q130.]
To my mind, the Bill is neither one thing nor another. It does not necessarily tackle the problem of public sector employment and the Government’s intentions to rebalance the economy, nor does it necessarily serve to stimulate growth where we are, in the greater south-east. Will the Minister clarify the motivation behind the greater south-east being exempted? My constituents deserve a clear answer as to why the scheme has been constructed in such a way.
I turn briefly to amendment 7. I can see an incredible amount of credit in the idea that local authority areas could be designated by the Treasury and by appropriate Ministers as areas that could benefit from the holiday. As my right hon. Friend the Member for Delyn has already laid out, there are situations—I can think of one or two in Luton right now where potentially we could lose large employers—where the stimulation would be necessary. It seems funny to argue from the Opposition side for greater powers in the hands of the Treasury to determine where this goes, but I see advantages to that approach. Local authority areas already produce information about public sector employment and levels of deprivation. Indeed, in my local authority there are wards that we are spending a lot of time and effort trying to revive.

Mel Stride: Does the hon. Gentleman accept that there is additional complexity and cost in trying to identify smaller areas for assistance? Indeed, during the previous sitting of the Committee, he put a question along those lines to Sam Mitha, who I notice is here today. He replied:
“If you have a system that required us to operate a more complicated, or a narrower, range of areas, by reference to which we were giving relief, that would raise the costs of compliance substantially.”
He went on:
“Instead of making the maximum amount of money available to new businesses, a significant amount of money would be absorbed in trying to administer the scheme.”—––[Official Report, National Insurance Contributions Public Bill Committee, 2 December 2010; c. 35-36, Q121.]
Does the hon. Gentleman agree with those comments?

Gavin Shuker: What is clear from those comments is that the scheme as it is intended is a simpler scheme than one looking at local authority areas and individual constituencies—either the 350 with the highest rate of unemployment or the 350 with the highest rate of public sector employment. But we are in politics not only to administer schemes but to address inequalities in our society. For us to constantly say that we just want the simplest and most straightforward scheme is an argument that produces a blanket scheme for a shorter period. This scheme does neither one thing nor the other.
I see advantages to amendment 5, which relates to the 350 constituencies with the lowest rate of unemployment. Unemployment is an issue in many of our communities and there are pockets of unemployment not only in regions but in constituencies. We are being presented with quite an innovative scheme. We certainly heard that from the evidence given by different experts. The question why we will not allow that innovation to extend to individual constituencies is one to which I still see no answer in the evidence that was given. When we want to tackle unemployment, or areas with very high public sector employment where we are hoping to rebalance the economy—as in the coalition’s stated aim—the amendments could make a real dent.
I appreciate that wherever we reach a border, there will be some difficulty. When we questioned the Minister, some of his most compelling responses were about trying to reduce the number of borders where there would be a significant movement of people. But That answer recognises that there will be a significant impact on several communities that border those areas. If we approached it from a simpler and more straightforward perspective and said that there are certain objectives and policy aims that we are trying to achieve—reducing unemployment in areas of high unemployment and rebalancing the economy in areas of high public sector employment—we could hold our heads high when we come out of the Committee and say that there was a simple and clear strategy behind it.
Clearly, a blanket approach across the south-east, the east and London—termed collectively as the greater south-east—does no credit to constituents in the massively diverse area of the greater south-east. If we are to make a strong case for the Bill, do we accept that there needs to be an increase in national insurance to address the deficit, which all parties seek to reduce? If we accept that there are businesses that will not start up as a result of this measure, we have to adopt a consistent approach, which must come from an ideological belief that it is our responsibility not just to administer schemes but to tackle deprivation where we find it, so that we end up with an economy that is fit for all people and that produces jobs as well.

David Gauke: We have had a useful and thorough debate on this matter so far. I thank the right hon. Member for Delyn for the spirit in which he began his remarks and for offering the hand of friendship. None the less, I detected a veiled threat of the boot of hostility as well, which I shall keep a careful eye out for. During the general election, the Opposition’s response to the crisis in the public finances was to raise employers’ national insurance contributions. Now their answer to the crisis is to reduce employers’ national insurance contributions; I call that progress.
 Mr Hanson  rose—

David Gauke: I am stretching the hand of tolerance already, but I will give way.

David Hanson: On a point of clarity, we supported a national insurance rise during the election and we supported it today. The Minister has brought forward a scheme to help the start of new businesses. Those new businesses are needed because the Government are cutting back massively on public spending, exorcising regional development agencies and making damaging cuts to regional assemblies, such as my own one in Wales. The hand of friendship extends because this is a scheme to help create new employment from the devastation of public sector cuts.

David Gauke: I note that comment. Perhaps I am being churlish, but I must point out that employers’ national insurance contributions will affect start-up businesses, existing businesses and employment. I wish that we could do more in that area, but we are very constrained. None the less, we are trying to do something, which is more than can be said of the previous Government.
Let me turn to the amendments. The right hon. Member for Delyn is right to say that we have to take some difficult decisions on the public finances. I am pleased that the OBR has reduced to 330,000 its projections for the number of public sector jobs that will be lost as a consequence of the fiscal consolidation. Whichever party came to power was going to have to take tough decisions on public spending and that would have had an impact on the numbers being employed by the public sector. The intention behind this scheme is to seek to redress that and to encourage private sector growth and enterprise. I am genuinely pleased that there is support from both Government and Opposition for that, although I understand that there are issues about how such help is targeted. I believe that we have the right approach, and I will seek to explain why.
It is fair to say that people of goodwill can hold different views on this, particularly those representing constituencies that do not benefit from the scheme. Of course a Member will want to speak out for their constituents if they think that they will be significantly disadvantaged. Let me see if I can explain our thinking. The amendments relate to the regional nature of the NICs holiday, which was a debate that we had on Second Reading and at the evidence stage. Amendments 1 to 4 taken together would make the holiday a UK-wide scheme. The NICs holiday is aimed at helping the formation of new businesses that are employing staff in those countries and regions most reliant on public sector employment. The reason that Greater London and the eastern and south-eastern regions are excluded is that the proportion of the population in public sector employment is lower than in any other part of the United Kingdom. We estimate that the scheme will cost an additional £660 million over the three years.
During the evidence session, I was asked whether, if take-up is lower than expected, there is a plan to expand the holiday to cover the whole of the United Kingdom. It is not only about cost, but about the policy rationale for the holiday, which is to target incentives on new businesses in regions with higher public sector employment. During the evidence session, the representatives of the Federation of Small Businesses and the British Chambers of Commerce made it clear that the greater south-east is more resilient than the rest of the United Kingdom. The formation of new businesses would not be significantly harmed because the holiday was not available. It must not be forgotten that all new and existing businesses in the greater south-east will benefit from the increase in the employer national insurance contributions threshold, which we have discussed, and the reduction in corporation tax rates. Reducing the deficit is the priority. We have limited resources in the application of this holiday, which was why we focused it in the way that we did.
The right hon. Member for Delyn proposes an alternative. To be fair, he made it clear that he is not proposing anything that would cost more than we have scored already on this policy. One proposal that he made was that we have this as a national scheme, but that we have a fixed budget, and that it stops when the money runs out. That would enable it to work across all regions, if I have correctly summarised one of his points.
The difficulty with the fixed-amount approach, which is what the previous Government did with the car scrappage scheme, is that while it may be appropriate in some circumstances, we have to look from the viewpoint of someone who wants to set up a business and is planning and is aware of this particular scheme and wants to make use of it. Imagine the situation if, having spent several months preparing to start a business, shortly before they did so, the person discovered that the scheme had run out of money. Imagine if someone who already had a business was benefitting from the national insurance contributions holiday and had taken on a number of employees and then, six months through, with 10 employees benefitting, the Government announced that the scheme had run out of money. We would have fundamentally undermined the whole policy, because we would have created a degree of uncertainty.
As we hear constantly, businesses want certainty on how their tax system works. If we want the scheme to have a beneficial behavioural impact, that degree of uncertainty within it would substantially undermine it. It would also cause considerable administrative costs and difficulties for Her Majesty’s Revenue and Customs in monitoring where the money was being spent and in identifying at which point all the £940 million had been spent, especially because much of that information may not come to light until afterwards. Although I understand the reasons why the hon. Gentleman suggests that this holiday could be done on a national basis and still remain within the cost envelope that we have identified, it is not a practical solution.

David Hanson: If the Minister refers back to my hon. Friend the Member for Walthamstow and the discussions that we have had, the basis on which he is determining the potential uptake of the scheme is woolly, if I am honest. In the event of the scheme being over-subscribed, will he stick to £940 million, or will he then apply the cap that I argue he should apply from the beginning, so that the taxpayer, and the businesses that may apply, know the extent of the scheme’s contribution?

David Gauke: I answered that question in the evidence session, and I hope that I will give the same answer here. The £940 million is a forecast for what the policy will cost, not a cap. If the uptake is greater than we anticipate, the cost of the policy will be greater and we will not cap it as such. Businesses need certainty that the scheme is the same as what we are putting on the statute book, and that the holiday will be available to their employees in exactly the same way as we have set out.

David Hanson: Again, this is an important point: one of the Minister’s arguments against the amendments is that the extra cost of £660 million will be incurred by the scheme being applied to London, the south-east and the eastern region, and that he cannot guarantee his hon. Friends that the £940 million will not become £1.3 billion at the end of the scheme, if the take-up is large enough, which it may well be. We need clarity on what basis the Minister has made the assessment of £940 million, because his argument against our proposals is based partly on cost, as well as partly on application.

David Gauke: If the number of businesses starting up were more than we had projected, that would suggest that there had been a greater behavioural impact than we had anticipated, and that the policy would have been a greater success. Whenever the Treasury, under whatever Government, sets out a tax policy, it forecasts what the cost will be. Sometimes, it is accurate—at least in theory, that happens—sometimes it is an overestimate, and sometimes it is an underestimate. However, on the basis of the numbers available to the Treasury and HMRC, it is the best estimate of what the policy will cost. For this particular policy, the best estimate we have is £940 million, but that will depend on take-up, and we will see how that develops. As I see it, there is nothing particularly difficult or novel about that.

Stella Creasy: Can the Minister clarify this point? By that logic, there is no reason to be against the entire process being extended to the whole of the UK. You say that it would cost £660 million and that essentially you have a blank cheque for the policy, dependent on take-up, so you could apply the same metric to the whole of the country and say, “We will intervene at a later date if necessary”, because you are also saying that you would intervene if the scheme went over a certain amount.

Graham Brady: May I just remind the hon. Lady that I am saying nothing?

David Gauke: I hope that that was not the approach that the previous Government took when they were in power. Essentially, one has to make a best estimate of how much a particular policy would cost, just as one would on how much a tax increase might bring in, or how much a tax cut might cost. It is an estimate and that does not mean, for example, that if a tax increase brings in more money than was expected halfway through the time period, one automatically reduces it. That is not how such things work. Our estimate is that the scheme will cost £940 million pounds, based on the regions and countries that are currently included. It would cost an additional £660 million if we included the areas that are currently excluded.

Kelvin Hopkins: Even if there were an indicative cap—an estimate of how much the scheme would cost—one approach might be to reduce the generosity of the scheme per enterprise, and have the scheme applied across the whole country. I would not choose that route myself; I would choose more generosity in general, but it is a possibility, is it not?

David Gauke: I note the hon. Gentleman’s comment that he would be more generous generally, and it is interesting to learn that he is an instinctive tax-cutter. We learn many things in Committees and it is a particular pleasure to hear of two Luton MPs working closely together, which is progress from the previous Parliament. If we made the scheme less generous, the chances of it having much of an impact where it applies would be weaker, and the essential impact would be limited. We would rather focus and target the scheme.

David Hanson: If the scheme were extended to London, the south-east and the eastern region, the number of people that the £940 million over the three years would affect would still potentially be the same. It would still be 400,000 businesses. It would still be 800,000 employees. It would just be spread over three other regions. There is no increase necessarily in the impact. What is the problem in doing that, given that there are already 23% public sector employees in London, the south-east and the eastern region who will not now qualify for this scheme?

David Gauke: The point that I was trying to make was that if we had reduced the eligibility per employee falling within the scheme then the chances of the scheme being particularly effective would be weaker. We might be spreading the benefits too thinly for it to make any noticeable behavioural impact or benefit for a business in those regions. I accept that this is a question of judgment, but our judgment is that if we were to do that the scheme would be less likely to be effective.
Amendments 5 and 6 would remove eligibility from areas which benefit under the Government’s proposals. I will turn to the policy and practical merits of these proposals in more detail shortly. However, a further consideration prevents these amendments from being accepted: no provision is made to protect those new businesses that are already benefiting from the operation of the scheme and which would be excluded under these amendments. If they were accepted, such business would be obliged to repay the employer’s national insurance contributions they have withheld to date. Perhaps just as damaging, those who are actively considering starting a business or who are in the process of arranging the necessary finances to start their new businesses, could see their business plans wrecked. That surely would be unfair. I hope that the right hon. Gentleman will agree that such outcomes are highly undesirable, and concur that these amendments cannot therefore be accepted.
Amendments 5 and 6 propose to exclude from the holiday new businesses located within the 350 constituencies with the lowest percentage rate of unemployment or lowest percentage rate of public sector employment respectively. I have said before that using smaller units such as constituencies does not recognise that in practice labour markets span larger areas. It is also worth repeating that ring-fencing small geographical areas would create multiple borders up and down the UK. The hon. Member for Luton North highlighted a town that spans Bedfordshire and Buckinghamshire. He pointed out, entirely fairly, that they are in different regions, although both fall within the excluded area. The hon. Member for Luton South was generous enough to say that he found the borders argument to some extent compelling. The right hon. Member for Delyn touched on the borders issue and I tried to tempt him to say more on that subject.
I have to accept that, as we have targeted this, there are border issues but were we to break it down even further those border issues would be exacerbated. There is the central point made by my hon. Friend the Member for Bristol West when he said that working patterns do not necessarily reflect constituencies or even local authorities and to some extent, particularly when we look at London, the south-east and the eastern region, not even regions. Thousands of my constituents in Hertfordshire travel to London every day. I am one of them. A point that I would make more broadly in some of the discussions when we look at London, unemployment rates and dependency on the public sector is that the London labour market is substantial and expands and includes much of the home counties in the eastern region and the south-east. We would face great difficulties with borders if we had a holiday scheme that was designed on the basis of constituencies or local authorities.
Making a distinction between the 350th and the 351st constituencies might create some issues. Data at constituency level are based on samples and will be subject to considerable margins of error, and rankings are likely to vary over time. I know this is only a temporary policy, but it is likely that by the end of the three-year period, the list of the 350 most deprived constituencies would be different from the one we will start off with, and those who found themselves in the list at the end would have reason to complain. We are not likely to see similar changes with regions, so we might face some difficulties there.
Amendment 7 targets the holiday at local authority level. It suffers from the same problems as I mentioned under amendments 5 and 6. It creates more uncertainty by not specifying the criteria that local authorities must satisfy to feature on the list, and by leaving open the possibility that those could change. Steve Hughes of the British Chambers of Commerce said in his evidence:
“When there are limited resources, it is better to focus them on the regions most in need.”––[Official Report, National Insurance Contributions Public Bill Committee, 2 December 2010; c. 6, Q8.]
In conclusion, the NICs holiday is targeted at regions and countries that have the highest proportion of public sector dependence to encourage new businesses to start up and to take on employees. Expanding the holiday to the whole country would undermine that policy rationale. Introducing new criteria at constituency or local authority level would increase complexity and, without much more complex legislation, lead to some employers currently participating in the holiday losing the benefits and having to pay back the NICs that they have withheld. Consequently, I ask the right hon. Member for Delyn to withdraw his amendment.

David Hanson: I am grateful to the Minister for what he has said. For the purpose of completeness, I can tell my hon. Friend the Member for Lewisham East that in her constituency there are currently 1,985 people unemployed, which is an unemployment rate of 5%. I apologise for missing her off my list earlier.
The Minister made some interesting arguments, but the nub of it goes back to the question of why key areas in the east, the south-east and London regions are excluded from the scheme. I have offered him what I hope are helpful suggestions. We have not put them down as amendments, but they have been part of the discussion. On reflection, he might on Report make this a two-year rather than a three-year scheme, which would operate from June 2010 to June 2012. During that time, he might have extended the scheme to the three excluded regions, monitored the extra cost arising from those exclusions and looked at the £940 million he is currently spending. Based on what has already been said, he might have evaluated the take-up of the scheme, which may not come anywhere near meeting the expected 400,000 businesses and 800,000 individuals over that period. At the end of that two-year period, he might also have judged whether he wanted to continue or extend the scheme based on the economy, which he believes will pick up through the Government’s other fiscal measures over that time.
The complete exclusion of certain areas still misses the point. My favoured option is to ensure that we have a scheme that is applicable across the whole country. I do not want to repeat the arguments, but—very pithily—there are three basic reasons for my wanting that. There are levels of unemployment in areas of the east, the south-east and London regions that merit the challenge of having Government help to generate new businesses. It is important that we encourage such new businesses in those areas as well as in the country as a whole. His logic on the public sector means that, as I have mentioned, we have a situation in which 23 of the top 100 constituencies by public sector employment are excluded by their being in the three excluded regions. On the deprivation index, as my hon. Friend the Member for Lewisham East said, seven of the 12 authorities are excluded by the removal of the three regions.
My offer to the Minister, which I hope he will consider, is that I will happily not press amendments 7, 5 and 6, because I recognise that there are administrative issues that need further reflection, as he pointed out. We tabled those amendments so that he could consider our concerns about local authority areas, unemployment and the public sector as a whole. I will happily not press them, but we need to maintain our concerns on amendment 1 and subsequent amendments.

The Chairman adjourned the Committee without Question put (Standing Order No. 88).

Adjourned till this day at Four o’clock.